What now? It’s all in the recovery factors

In last year’s end of year opinion piece for Energy Voice, I talked about the realignment of the oil and gas industry. I opined that the sector is not in a cycle as we know it, but rather, in a shift of mentality to one that is nimbler, more innovative in attitude with plenty of upside potential.

For the first half of 2018, I pontificated that although companies would slow down the number of redundancies, more jobs would still need to go, especially in the service sector. I also suggested we would see a steady and relatively flat price index from USD48-65 bbl for most of the year. The article also talked of how operators would eventually ease on holding back on capital and shedding expense and in turn, would gradually allow innovation to return to the market.

My soothsaying wasn’t far off. We started 2018 at USD65+ bbl (Brent) and USD60+ bbl (WTI). We will most likely end the year at USD61+ and USD53+ respectively, with an average of USD65+ for the year.

What next for 2019?

The last quarter of 2018 has seen such a dramatic plunge in the oil price index. This has seen the industry suffer from the proverbial cold and retreat to its bed. Is this simply a short, sharp winter flu or a potentially life-threatening illness?

Supply has again been strong and as we end Q4 2018 there is excess to demand. This somewhat worrisome situation has been further compounded with an unpredictable global economy and political landscape. The industry has easily replaced the feared lost barrels from Venezuela, Libya, Iran and others from astonishing increases in the US unconventional market. Although all regions have different drivers and political realities, two things are constant; supply eventually marches in step with demand, and the relentless goal to optimise reservoir recovery.

As far as supply and demand are concerned, the recent plunge in prices should be short-lived. I believe the industry has already readjusted and learned to be nimbler, more efficient and most importantly, agile enough to react to global supply and demand worries. Over the next 12 months, the industry should expect a more disciplined approach as we deal with these current headwinds. OPEC and Russia have already signalled a move to stabilise supply in the New Year.

Opportunities should arise for the operator community to again fuel innovation breakthroughs via the oilfield service sector. Over the past ten years, considerably more focus has been put on maximising recovery factors for the most efficient dollar spent. Reservoir recovery factors still hover from 5 to 35 percent on average.

Realising reservoir recovery in 2019

If supply and demand are held in check and we have over 150 years of known reserves, when it comes to the future of fossil fuels, it’s all about recovery factors.

As fields mature and all the ‘easy oil’ is accessed, the need to replace much sharper reserve declines to keep supply online will have to be driven by technology advances to realise better recovery factors and more efficient wells.

The industry must continue to support and encourage that focus as it is one of the principal factors that will allow us to provide affordable, abundant energy to the developing planet well into the predicted shift to sustainable alternatives in the centuries ahead.

Technology innovation almost always comes from the oilfield service sector and will require some headroom and investment from the operating community for it to return bolder and in better shape in 2019.

A new breed of mid-tier upstream service companies, coupled with willing operators, will bring true innovation to maximise reservoir recovery factors. This is what must happen to ensure efficiency, a buffer to geopolitical supply and demand cycles, and ultimately, energy security for the global population.